3 million to retire?

[m3racer]

I just read this in an article that stated gen-x and Yers will need about $3million to retire comfortably due to inflation. Obviously this $ amount is subject to life style but krap!!! That's a whole lot of cheddar.

[disneysteve]

Using the standard 4% withdrawal rate, that will provide a first-year of retirement income of $120,000. Sounds like a lot, but you're talking about 35 or 40 years from now. Not really so much when you think about it. I'm 44 now and figure I need over $2 million to retire.

Of course, that figure depends on lifestyle, but it also depends on income. If you make $30,000 now, you will need a lot less than if you make 60K or 100K or more now.

[swanson719]

I'm 22, and figure I'll need at least 10M to retire and still be able to leave an inheritance for my kids. That's figuring social security will be dead and that I'll want to enjoy life and not just get by. Average of 4.5% inflation over the next 60 years, you're looking at today's $40,000 being the then modern day equivalent of $108,000. So Steve's withdrawal of $120,000 for then would be near the average working income. People normally make their highest income in the years shortly before retirement, which would be $100K+ in todays income, so you would need about $270K a year to just retire at the same standard of living as you were living at while working. $3M actually seems kinda low to me from the that viewpoint. It would only give you 11 years worth of income, and that's not adjusting for inflation during retirement, or leaving an inheritance.

[red92s]

Originally Posted by swanson719

I'm 22, and figure I'll need at least 10M to retire and still be able to leave an inheritance for my kids. That's figuring social security will be dead and that I'll want to enjoy life and not just get by. Average of 4.5% inflation over the next 60 years, you're looking at today's $40,000 being the then modern day equivalent of $108,000. So Steve's withdrawal of $120,000 for then would be near the average working income. People normally make their highest income in the years shortly before retirement, which would be $100K+ in todays income, so you would need about $270K a year to just retire at the same standard of living as you were living at while working. $3M actually seems kinda low to me from the that viewpoint. It would only give you 11 years worth of income, and that's not adjusting for inflation during retirement, or leaving an inheritance.

You have not really considered the fact that by retirement, you (hopefully) are done making house payments and the costs of living could be substantially lower. But, then there is that stupid healthcare thing . . .

[disneysteve]

Originally Posted by red92s

the costs of living could be substantially lower

I think there is a growing consensus that this is a myth. Surveys of current retirees seem to keep showing that spending and costs don't decrease much, if any, in retirement, at least early on. Spending patterns change, but the totals don't. Instead of spending money for bus passes and parking and work clothes and professional conferences, you're spending money on travel, gifts for the grandkids, prescription meds, hobbies you never had time for before and more.

Years ago, planners used to shoot for 70% of pre-retirement income. Now, most go for 80% or even more. I do all of my planning based on replacing 100% of income. I know we could get by on less, since we live on well less than 80% of income now, but if we can replace 100%, it will make for a much more comfortable retirement and at an earlier age.

[Aleta]

You may also need more money due to jobs around the house that because of health reasons would have to be hired out. Some may not want to do the yard work anymore. I think Steve's idea is best at looking at 100% of your income because you may have to pay taxes especially if you have a traditional IRA.

[swanson719]

It's like the EF - it's there not because you have some need for it, but because sometimes there is a need for it. We don't plan on needing it, but keep it around just in case. Replacing our whole income during retirement is the same way. Living higher on the hog now and planning on only needing 70-80% is fine, but everyone knows that life doesn't go according to plan. That extra 20% could mean the difference between getting the meds you need to stay alive or having that burden passed onto your kids and grand-kids.

I've already told my in-laws that if they don't get long term care insurance when they turn 60, then I'll get it for them because it's not worth losing ones life savings for a couple of years in a nursing home. Financial security is as much about having the EF, or insurance, in place for the unexpected as it is about being able to cover the day to day costs of life. Without it, everything someone works for to cover daily costs can be ruined because of the unforeseen.

[m3racer]

This is really scary stuff. How is the average American my age going to pull this off? Accumulating $3 million big ones is a scary proposition IMO. I better start playing the Power Ball.

[disneysteve]

Originally Posted by m3racer

This is really scary stuff. How is the average American my age going to pull this off? Accumulating $3 million big ones is a scary proposition IMO.

The younger you are, the less daunting these numbers are.

Let's say you are 25. You've been out of college for a few years and you are earning 50K. You invest 15% toward retirement and earn an average annual return of 7%. At age 65, you will have amassed $1.65 million. That figure does not account for any raises along the way. Since your salary will grow over the years, that 15% will grow also, increasing the final number considerably, probably putting it well over the $2 million mark. And that's making just 50K, which isn't all that much today.

[jIM_Ohio]

Setting an amount as a target is like playing with fool's gold.

Track your expenses, once you have between 12X-20X your annual expenses in savings, you have are close to retirement (close=6-12 years).

You have 10X more control over your expenses than you do on what the "magical amount" will be for you when its time to retire.

Personally 4.5% personal inflation is high... yet it's not like people are saving 3% less when there is 3% inflation... they find a way to cut back or shift resources. Cost of heat goes up means the number of vacations go down- or something like that.

I actually have negative inflation relative to this time in 2008- less money spent on gas and less money spent on food relative to this time last year.

[Zunow]

> Of course, that figure depends on lifestyle, but it also depends on income. If you make $30,000 now, you will need a lot less than if you make 60K or 100K or more now.

I think a better way to look at is how much you spend, not make. People need to realize it's ok to make 100K+ per year, but spend as-is you "only" make 50K per year. The 50K difference in salary (and spending) isn't going to make you a fundamentally happier person.

[disneysteve]

Originally Posted by Zunow

I think a better way to look at is how much you spend, not make. People need to realize it's ok to make 100K+ per year, but spend as-is you "only" make 50K per year. The 50K difference in salary (and spending) isn't going to make you a fundamentally happier person.

True. I was making the assumption that someone who earns 30K spends less than someone who earns 100K, which I think is a fairly safe assumption though there may be exceptions out there. It is spending, not income, that ultimately matters.

[swanson719]

In the 1920's, the average annual income per person was roughly $1,000 before the depression hit. In 1970 you could buy a car for $3,000. In 1980 you could build a dream home for $100,000 in most parts of the country. Personal inflation of 4.5% is high, though I was going with the economic average. To our grand-parents, the thought of making $100,000 a year was todays equivalent of making a million. It's not that far out of sight really.

[DebbieL]

Here in Canada at least it is a lot cheaper to live after you are retired (assuming of course the person has been sensible and doesn't still have a mortgage hanging over their head, etc). Then again, health care costs are not an issue here like it is in the States. If you are planning on living a super extravagant lifestyle then that will cost you, but most retirees I know really don't do that. My parents for example have enough money to do anything they could want, and they are very simple people. They don't really live any differently than before retirement (other than they no longer have to go to work everyday). They always had one or two vacations a year. That isn't different. My dad always kept a huge garden, that isn't any different. He took up beekeeping in retirement. That's really the only thing I can think of that's different. They have never been in debt (other than with their mortgage). Their mortgage has been paid off for over 30 years. I will likely be the same way. I'm fairly content with the way I currently live (which is below my means). So, considering that I am saving money now (and don't really need my whole income to live), I would be okay with lower income in retirement. I will probably take an extra trip every year or something like that, but nothing too fancy. We currently go on at least one a year (and a bigger one every couple years).

[faithman1012005@yahoo.com]

I better start saving fast, move to Canada or both lol

[Goldy1]

I live in Michigan not to far from Canada. I never considered moving there. I hae joked about it for "free" healthcare, but it's not like you roll over the other side of the bridge and get your citizenship.
Maybe there will be healthcare reform policies in the US by the time I retire, but I do not assume so.
My mortgage is almost paid, but it scares me I could lose my life savings due to health issues(even tho we are healthy) I would actually say it' s like one of my only fears in life other than a car accident. (gosh what a grim post huh lol)

I would like to take trips when I retire. I want to budget for that. I don't want to sit in my rocker and play bingo.
I never figured out how much I need to save. I just save as must as I can without being a miserable old miser.

I look forward to retirement, but I also want to continue to savor and enjoy my youth!

[Zunow]

> but it scares me I could lose my life savings due to health issues

What am I missing? I understand it's expensive, but you do have health insurance, right? If so, get on a plan that has maximum annual contribution of something lowish ($7,500) and unlimited or very high ($6M) total care they will provide.

If you do that, how would you "lose your life savings" in a bad-case medical scenario?

[Ronin]

I'm not going to have have $3M saved when I retire, but I do have a job that pays our a 90% retirement, so I don't think I'll need that much

[disneysteve]

Originally Posted by Zunow

I understand it's expensive, but you do have health insurance, right? If so, get on a plan that has maximum annual contribution of something lowish ($7,500) and unlimited or very high ($6M) total care they will provide.

How exactly do you propose people pay for such a plan? I'm a professional earning a 6-figure income. I'm 44 and in good health. My health plan isn't anywhere near as good as what you describe and it is way expensive. I can't afford to spend 2 or 3 or 4 times as much per month to get a much better plan. And for an older person, the premiums would be even higher than for someone my age.

[swanson719]

A high deductible HSA would more than cover that. DW and I have looked into it, and for our situation could get a $10,000 deductible HSA which would be ideal. We carry roughly $480,000 in medical each year for DW's dialysis and treatment, so the $10,000 would be ideal in that situation. For now, Tricare covers it, but it's definitely going to be difficult to find affordable insurance aside from an HSA if I get out.